Nonetheless, we're sticking with the broad game plan we laid
out in December for how to navigate this environment. As we enter
the second quarter of 2014, investing opportunities appear more
elusive than at the beginning of the year (and the challenges
more evident).

1. Stick with stocks
. We still believe that stocks offer better value than bonds,
even after a five-year bull market
. At the same time, we expect to see continued low inflation and
low interest rates, as well as a gradually improving economy- all
factors that are supportive of stocks. As such, we expect that
the market will push ahead in the months to come, although it
will likely be a slow and uneven grind given ongoing geopolitical
turmoil and Federal Reserve (Fed) tapering. As such, investors
should have modest expectations, at least compared to 2013's
outsized gains.

2. More international exposure.
Within equities, we believe that, in general, many investors
should consider paring back some U.S. exposure in favor of
non-U.S. stocks. Despite the reality of geopolitical uncertainty,
we see plenty of growth opportunities abroad and would encourage
investors to expand their reach globally.

In particular, we have a favorable view toward eurozone and
Japanese stocks. Events in Ukraine present some risks for Europe,
but we believe both European and Japanese equities look
attractively valued compared to U.S. stocks. Finally, for
investors with a strong stomach and long time horizon,
we
suggest having some exposure to emerging markets
, which offer a combination of attractive value and compelling
long-term growth prospects.

3. Consider a flexible bond approach.
It has been a tough time for bond investors, and conditions
aren't getting any easier. What to do? Being flexible and
diversified globally remains key. With yields likely to be
volatile, and some areas of the fixed income market feeling the
effects more so than others,
a
flexible, go-anywhere bond portfolio
that can make adjustments on the fly is something to consider
having in your fixed income toolkit.

4. Think high yield and municipal bonds.
We continue to believe that investments such as high yield bonds
and municipal bonds remain attractive sources of income. In
regards to the latter, municipal bonds continue to look
attractive versus both Treasuries and corporate bonds. We're
seeing competitive yields on a before-tax basis-which only
further illuminates the after-tax value. However given the
likelihood of rising rates and improving data, a diversified and
unconstrained approach is a necessary strategy in the tax-exempt
space as well.

5. Go beyond traditional stocks and bonds.
Investors could incorporate alternative strategies that can help
broaden their diversification, protect against rising rates, and
contribute to growth. (Remember, however, that diversification
does not ensure profits or protect against loss.)

Diversifying with alternatives means adding new asset classes
such as physical real estate and infrastructure investments. You
also may want to consider new strategies such as long/short
approaches that can be employed with both stocks and bonds to
mitigate volatility, seek out returns and contribute to
diversification. While the risks of long/short strategies include
the possibility of losses larger than invested capital, we
believe they can offer a powerful differentiated source of return
and the potential for more consistent results over time.
To learn more about what might occur in the months ahead and how
to capitalize on some potential opportunities, check out
the spring update to our 2014 Outlook - The List:
What to Know, What to Do
.

Sources: BlackRock research

Russ Koesterich, CFA, is the Chief Investment Strategist
for BlackRock and iShares Chief Global Investment Strategist.
He is a regular contributor toThe Blogand you can find more of his postshere.

Fixed income risks include interest-rate and credit risk.
Typically, when interest rates rise, there is a corresponding
decline in bond values. Credit risk refers to the possibility
that the bond issuer will not be able to make principal and
interest payments. Non-investment-grade debt securities
(high-yield/junk bonds) may be subject to greater market
fluctuations, risk of default or loss of income and principal
than higher-rated securities.

There may be less information on the financial condition of
municipal issuers than for public corporations. The market for
municipal bonds may be less liquid than for taxable bonds. Some
investors may be subject to federal or state income taxes or
the Alternative Minimum Tax (
AMT
). Capital gains distributions, if any, are taxable.

International investing involves risks, including risks
related to foreign currency, limited liquidity, less government
regulation and the possibility of substantial volatility due to
adverse political, economic or other developments. These risks
often are heightened for investments in emerging/ developing
markets, in concentrations of single countries or smaller
capital markets.

iS-12235

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

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